Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How to Trade Binance Vanilla Options for the First Time on Bitcoin Crypto's - 2nd Aug 21
From vaccine inequality to economic apartheid - 2nd Aug 21
Stock Market Intermediate Top Reached - 2nd Aug 21
Gold at a Crossroads of Hawkish Fed and High Inflation - 2nd Aug 21
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investment Analysis - Simple, Simple, Simple... but powerful?

InvestorEducation / Learning to Invest Apr 23, 2007 - 01:27 PM GMT

By: Investmentscore.com

InvestorEducation

The objective of this article is to illustrate a powerful investment analysis technique by first examining a simplified hypothetical scenario.  We will then explore this concept on the markets of today.  To do this we will:

1)    Outline some basic investing rules to be used as guidelines.
2)    Present a hypothetical scenario for analysis.
3)    Guided by our rules, form a conclusion for the purpose of understanding the markets.
4)    Explain how we think this analysis applies to the markets of today.


1)  Rules to guide investment analysis:


A.    All markets are cyclical.   No investment is constantly a good or a bad investment.  Where a particular investment is in its cycle is what is critical.

B.    There is always a bull market somewhere.  When one investment class is at an extreme high, we believe there is always an investment at an extreme low.  The trick is to invest in the investment class which buys the most of that asset for the least amount of money. 

C.    All major macro market trends will not end until an extreme is reached in the direction traveled.  Once that extreme is met, like a pendulum swinging, the new trend will start and will not end until the extreme is met in the other direction.  Bull markets start when public sentiment towards an investment is extremely pessimistic following a major bear market and end during extreme public optimism.

2)  Hypothetical Scenario for Analysis:


For this hypothetical scenario we ask the reader to ignore previous investment understandings and simply concentrate on the word problem below:

For this scenario assume there are only four major investment classes: Stocks, Bonds, Real-estate and Commodities .  It is the year 2000 and as a general rule:

a)  Stocks have been in a bull market for about twenty years, and public sentiment appears to be at an extreme high.
b)  Bonds have been in a bull market for about twenty years, and public sentiment appears to be at an extreme high.
c)  Real-estate has been in a bull for about ten years and public sentiment appears to be aggressively climbing.
d)  Commodities have been in a bear market for about twenty years and public sentiment appears to be at an extreme low.

QUESTION:
Based on the rules in section one of this article, of the four investment classes outlined in this scenario, what investment is most likely to be starting a brand new, long term bull market? 

3)  Hypothetical Scenario Conclusion


ANSWER:
The answer is obviously (d) commodities.  If we consider the above rules we know that all markets are cyclical and Stocks and Bonds are likely at the end of their bull market after a twenty year climb while public sentiment is at an extreme high.  We also know real-estate is heading into its more aggressive growth phase as public enthusiasm picks up steam.  However, considering our rule that bull markets are cyclical, the real-estate market is likely maturing rather than starting at an extreme low.  Finally, commodities have been in a major bear market for twenty years.  This asset class is practically hated as an investment opportunity and as a result ready to start a new long term bull market.

You may be wondering, since we are in the year 2007 and not 2000, how does this hypothetical scenario apply to our understanding of the markets today? 

4)  Understanding the Markets Today


The answer to that question is simple.  The same rules expressed above can be applied to the markets of today.  Why?  Human behavior as a group is very predictable.  Individuals can be unique but given a certain set of circumstances people as a collective will behave in a predictable manner.  If a group of people outside are rained on, most will seek cover from the rain.  Some individuals may enjoy the rain but most will predictably seek shelter.  When dealing with an emotional topic such as money and finances this predictability is especially true.  For example, if an investment is rising in value our excitement and greed tends to make us want to buy more.  As a group we bid prices up until they are too high, the extreme is then met and the trend quickly corrects. We believe this is the predictable behavior of markets.

So if we apply the rules above to the markets of today how can we profit from this knowledge when we invest?  We know that since 2000 until now:

a)  Stocks had a major correction starting in 2000 and have since bounced.  However, public sentiment has remained high.  We believe brand new long term bull markets do not typically start in these conditions.  Additionally, in our opinion it is highly unusual for a major twenty year bull market to end and then start with only a two year correction in between.  This is not nearly enough time for public sentiment to diminish and set the ground for a new prolonged bull market.

b)  Bonds typically follow the same pattern as stocks and in our opinion bonds are in the same situation as stocks in this scenario.

c)  Real-estate by our calculation hit an extreme high in price, public optimism, excitement etc.  The indicators of the publics extreme "can't lose mentality" towards real-estate are simply too many to list in this article.  Recently we have witnessed a correction, however in our opinion this is not nearly enough of a correction to offset the imbalance of the massive bull market advance.  

d)  Commodities have been in a bull market for about four to six years depending on how one determines the bottom.  We believe overall public sentiment towards commodities remains negative but awareness of this market is very slowly making it to the consciousness of the general public.  In our opinion this is extremely bullish for commodities.  The market is rising yet it seems most investors are not aware of the potential mega bull market.


In our opinion the commodities bull market is just getting started.  As the general public realizes the commodities bull has been roaring ahead, they will likely jump on board and push up prices to dizzying, unsustainable heights.  We think commodities are a long way from being overvalued and the time to invest in commodities is before the public becomes aware of this mega trend. We believe fortunes will be made in this bull market as early comers grow their wealth and late comers try to catch the trend, but fortunes will be lost for those who overstay their welcome.

Having a set of rules, understanding market behavior and incorporating a trading system around these principles helps an investor ignore the day to day noise and misinformation of media hype.  Having a system helps an investor reduce common investor weaknesses such as emotional trading decisions. 

We encourage readers who enjoyed this common sense approach to the markets to visit our website at www.investmentscore.com .  Here you will find free commentary, learn about our unique system for investing in the markets and have the opportunity to subscribe to our free newsletter.  You may also learn how we plan to determine when we will sell our precious metals investments.

 

By Investmentscore.com

Investmentscore.com is the home of the Investment Scoring & Timing Newslette r. Through our custom built, Scoring and Timing Charts , we offer a one of a kind perspective on the markets.

Our newsletter service was founded on revolutionary insight yet simple principles. Our contrarian views help us remain focused on locating undervalued assets based on major macro market moves. Instead of comparing a single market to a continuously moving currency, we directly compare multiple major markets to one another. We expect this direct market to market comparison will help us locate the beginning and end of major bull markets and thereby capitalize on the largest, most profitable trades. We pride ourselves on cutting through the "noise" of popular opinion, media hype, investing myths, standard over used analysis tools and other distractions and try to offer a unique, clear perspective for investing.

Disclaimer:No content provided as part of the Investment Score Inc. information constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers, including the staff of Investment Score Inc. or their affiliates will advise you personally concerning the nature, potential, value or suitability or any particular security, portfolio of securities, transaction, investment strategy or other matter.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents may or may not own precious metals investments at any given time. To the extent any of the content published as part of the Investment Score Inc. information may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Investment Score Inc. does not claim any of the information provided is complete, absolute and/or exact.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents are not qualified investment advisers.   It is recommended investors conduct their own due diligence on any investment including seeking professional advice from a certified investment adviser before entering into any transaction. The performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete.   From time to time, reference may be made in our information materials to prior articles and opinions we have provided.   These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current.  As markets change continuously, previously provided information and data may not be current and should not be relied upon.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in